I am thankful to PIDE for giving me the opportunity to be here and
participate in this important discussion. It is always exciting to come
back to this audience because this is where I started my career as an
economist. We have with us Dr S. M. Naseem and Dr Nawab Haider Naqvi who
guided me in my earlier years and I would like to thank them also.

I will try to restore some balance after Dr Ashfaque's
alarming comments on the state of the economy, recognising well that we
have challenges that need to be addressed. Mr Baldridgde in his
discussion has given us fifty questions that capture many of the
challenges. But first let me say a few words about whether politics
should triumph over economics or the other way around. Lets not forget
that we have a democratically elected government that represents a
delicate coalition of several political parties and competing political
interests. In this setting, it is not at all surprising that
technocratic economic solutions are secondary to the political ones, and
that "economics does not triumph over politics" as lamented by
the previous panelist. In a democratic framework, the economists'
role is to ensure that political objectives are met without inflicting
an unsustainable fiscal burden and sacrificing the long term development
objectives.

A democratically elected government has to address the core
political issue facing Pakistan, i.e., the dissatisfaction expressed by
smaller provinces based on the perception that they do not get a fair
share in the country's resources such as the central pool of
revenues, water etc. This requires addressing the legal framework and
the institutional mechanisms for sharing resources. To be helpful,
economists can pose the question as to what would be the development
outcomes associated with the 18th amendment of the Constitution and the
7th NFC award in the next 5 to 10 years.

A core outcome that would need to be assessed is whether the new
arrangement improves overall economic management in the country enough
to avoid the boom and burst cycles the economy is subjected to every
four or five years. Underlying the boom and bust cycles are two critical
issues. One, have we strengthened the fiscal side adequately which means
both the revenue side as well as the expenditure side? And, two, have we
addressed the international competitiveness of the economy to attract
investment for increasing and diversifying our exports? The latter would
also allow us to identify and address the factors that have held back
industrialisation to create the kind of jobs a society needs in order to
have continued improvement in standards of living.

The other core development outcome to assess the new resource
sharing and decision making arrangement is whether or not it will allow
improved delivery of social services. Not all public sector delivery in
Pakistan is bad. We do very well on infrastructure. But when it comes to
health and education, we lag behind others at the same income level.

Economists need to debate whether amending the constitution and
changing the NFC award will help in achieving these development
outcomes. The way I look at it, the design of the new arrangement does
not explicitly address the core development challenges adequately. That
does not mean that the change was not needed but that it is a crucial
first step that needs to be followed up with detailed technical work to
ensure that the two key development outcomes I outlined earlier improve
as a result of this major shift towards decentralisation. One wishes
that the detailed technical input for making this assessment and
therefore incorporating it in the design of the new NFC award had been
taken earlier. But we are where we are. We should thus look at the award
as an important step forward but one that will need continued fine
tuning in order to improve development outcomes.

One example of where more work is needed is provincial revenue
generation. We could have designed revenue sharing under the 7th NFC
award to incentivise improvement in local tax collection such as the
property tax, agricultural income tax and the value addition tax on
services. Thus Punjab would get more from the central pool for improved
collection of the property tax; Sindh would get more for delivering on
the huge inequality in agricultural holdings via a highly progressive
agricultural income tax. I do not know what the political imperatives
were to announce the package when it was announced. Had we have more
time, we could have built these revenue improving incentives into the
design of the new award.

Anwar Shah is with us today and he will tell you that international
experience shows that such incentives can also be built on the
expenditure side. For example, the design of inter-state revenue sharing
incentivises not only additional revenue collection but also can help
improve expenditure management.

The design of the new NFC award could also have been more explicit
on delivery of services to the citizens especially social services by
being more specific on achieving, for example, improvement in enrolment
at various levels of education, in the provision of primary health care
and social protection.

All is not lost. The Council of Common Interests and the National
Economic Council are strong institutions that will oversee
implementation of the constitutional amendment and the NFC award. They
are responsible for ensuring that the desired economic outcomes are
achieved. To carry out this responsibility, CCI and the NEC need to
strengthen capacity in three areas. They should help create an
independent office of Statistics that collects timely and credible
information on key aspects of the economy. Technical analytical
capability is also needed to monitor and assess development outcomes
associated with the decentralisation. A strengthened PIDE would be the
right institution to do this. An institution akin to a leaner and more
agile and technically capable Planning Commission would also be needed
to assist the provinces in better design of projects that address the
key development challenges efficiently. The NEC and the Council of
Common Interests, working in tandem, should be able to say to the
provinces, "Look, we have given you a lot more money, are you using
it sensibly to achieve your development goals? Are you collecting more
of your own revenues? If you are, here is some more money from the
central kitty; if not, let us help you collect more revenues and spend
them better before you ask for more money". Such a conversation is
possible only if the NEC and the CCI have the backing of the three
institutions I just mentioned. Without them the CCI and the NEC we will
not have the ability to assess whether this monumental shift in the way
moneys are to be allocated and spent will give us the desired results on
critical aspects of economic management I outlined earlier.

The challenge for us economists in conversations when we appear on
television, write columns in newspapers, participate in forums such as
today's conference, or when we undertake serious research is to
hammer away at what the desired shape and capability of the supporting
institutions would be to monitor, assess and design the key development
challenges. The time for questioning the appropriateness of the 18th
amendment and the supporting NFC award is now behind us. Instead, lets
focus on getting better development outcomes from these important step
towards decentralisation.